Attention: CEOs and employees in companies’ legal divisions.

Pepeliaev Group advises that Information Letter No. 156 dated 26 February 2013 of the Presidium of the Russian Supreme Commercial (Arbitration) Court (the “SAC”) was published on 1 April 2013. In this letter the Presidium of the SAC clarified how commercial (arbitration) courts should apply the public policy as a ground for refusing to recognise and enforce foreign court judgments and arbitral awards.

Statutory Regulation

According to article 241 of the Russian Arbitration Procedure Code (the “APC”), judgments of courts of foreign states regarding disputes or other cases arising in the process of commercial or other economic activities (foreign courts), awards of commercial courts and international arbitration courts adopted in foreign countries regarding disputes or other cases arising in the process of commercial or other economic activities (foreign arbitral awards) should be recognised and enforced in Russia by commercial (arbitration) courts if this is provided for by an international treaty to which Russia is a party and by federal law.

In accordance with article 244 of the APC, a commercial (arbitration) court should refuse to recognise and enforce a foreign court judgment or arbitral award in full or in part if enforcing such judgment would be inconsistent with Russia’s public policy.

Clarifications by the SAC

The presidium of the SAC has developed the following recommendations for commercial (arbitration) courts:

  1. When a commercial (arbitration) court assesses the consequences of enforcing a foreign court judgment or arbitral award in terms of whether it is in line with Russia’s public policy, this should not entail a review on the merits of the case.
  2. A commercial (arbitration) court may independently refuse to recognise and enforce a foreign court judgment or an arbitral award if it has established that such recognising and enforcing would be contrary to Russia’s public policy.
  3. The Party claiming that to recognise and enforce the foreign court judgment or the arbitral award would be contrary to Russia’s public policy should substantiate why this is so.
  4. A commercial (arbitration) court should refuse to recognise and enforce a foreign court judgment or an arbitral award on public policy grounds only in exceptional circumstances, without substituting this for the specific grounds for refusing to recognise and enforce as provided by international treaties to which Russia is a party and by the APC.
  5. Recognising and enforcing a foreign court judgment or an arbitral award may not be treated as contrary to Russia’s public policy only because Russian law lacks certain regulations similar to those that the foreign court or the tribunal applied.
  6. A commercial (arbitration) court should hold that it is in line with Russia’s public policy for a foreign court judgment or an arbitral award to be enforced if the evidence provided by the debtor does not testify that a measure of damages or a penalty is punitive in nature when such damages or penalty was agreed in advance and recovered under a civil law contract.
  7. A commercial (arbitration) court should recognise that if a foreign court imposes on a Russian person or entity, as a party to the proceedings, an obligation to pay a bond as a condition for filing an appeal and if such Russian person or entity fails to perform such obligation, as a general rule, this in itself may not prevent the court from recognising and enforcing the foreign court judgment and is not evidence that the judgment or award is contrary to Russia’s public policy.
  8. If a foreign legal entity fails to comply with the procedure for obtaining an approval of a major transaction as provided by such entity’s own domestic law, this is not evidence that it would be contrary to Russia’s public policy for a foreign court judgment or arbitral award to be recognised and enforced in relation to a claim arising from the counterparty’s non-performance under such transaction.
  9. If the legal framework relating to spouses’ joint title to property stipulates that it is possible to levy execution on the property of one spouse or, should it be insufficient, to separate out the share that would be due to such spouse should the jointly owned property be divided between the spouses, this does not entitle a commercial (arbitration) court to refuse to recognise and enforce a foreign court judgment or arbitral award made without the indebted spouse’s participation in the proceedings because it is contrary to Russia’s public policy.
  10. A typographical error in a foreign arbitral award may not be regarded as preventing such award from being recognised and enforced because it is contrary to Russia’s public policy as long as the error does not affect the award’s essence and spirit.
  11. A commercial (arbitration) court should treat an arbitral award as consistent with Russia’s public policy if it establishes that during the arbitral proceedings the independence and impartiality of the arbitrators was guaranteed.
  12. A commercial (arbitration) court may dismiss a claim to have a foreign arbitral award recognised and enforced, treating such award as contrary to Russia’s public policy, if such award was made by an arbitrator whose position and authority allowed him/her to affect the actions of either of the parties.

Conclusions and advice

The practical experience of Pepeliaev Group’s lawyers who participate in proceedings involving recognising and enforcing foreign court judgments and arbitral awards in Russia shows that a foreign court judgment being contrary to Russia’s public policy is one of the most popular grounds which the parties cite to avoid having foreign judgments recognised and enforced. At the same time, owing to the lack of a clear legal definition of the circumstances in which this ground may be relied on, it is often used as a substitution for the specific grounds for refusing to recognise and enforce such judgments that are stipulated by international treaties to which Russia is a party and by the APC.

There are a number of procedural difficulties in lawsuits that involve having foreign court judgments and arbitral awards recognised and enforced in Russia, especially when recognition and enforcement is challenged. Comprehensive legal support is often required in such cases.